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Bain Capital under investigation for tax strategy

New York’s attorney general is investigating whether executives at Bain Capital, the private equity firm founded by Republican presidential nominee Mitt Romney, improperly avoided paying $200 million in federal income taxes, according to a report by the New York Times.

More than a dozen firms are under investigation by the attorney general, Eric T. Schneiderman, who has subpoenaed documents that would show whether some fund management fees were converted to fund investments. Profits on investments are taxed at a much lower rate than management fees, which count as earned income.

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Tax experts disagree about whether the practice of converting fees to investments is illegal, according to the Times.

R. Bradford Malt, an attorney who manages Romney’s finances, told the Times that “investing fee income is a common, accepted and totally legal practice”

“However,” Malt added, “Governor Romney’s retirement agreement did not give the blind trust or him the right to do this, and I can confirm that neither he nor the trust has ever done this, whether before or after he retired from Bain Capital.”

Hundreds of pages of leaked financial documents from Bain Capital that have been posted online indicate at least $1 billion in executives’ management fees were converted to investments, whose capital gains are taxed at 15 percent, instead of the 35 percent paid on earned income in the top tax bracket.

The move saved Bain Capital executives at least $200 million in taxes.

Callum Borchers can be reached at callum.borchers@globe.com. Follow him on Twitter @callumborchers.
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